Contract Law

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Transcript of Contract Law

  • 1INTRODUCTION

    1. the aims of this book is book has three principal aims. e rst is to provide an exposition of the rules that make up the law of contract. To this end it seeks to describe and to analyse the central doc-trines of the modern law of contract and to explore the principal controversies associated with these doctrines. It seeks to ful l this aim through a combination of text, cases, and materials. e function of the text is both to explain and to evaluate the principal rules and doctrines of contract law and to provide a commentary on the leading cases and statutes. e cases chosen for inclusion in the book are the leading cases on the law of contract. I have chosen to rely on longer extracts from a smaller range of cases rather than try to include short extracts from every case that can claim to have made an important contribution to the development of the law of contract. e decision to restrict the number of cases was made for two reasons. First, it is important to allow the judges to speak for themselves. Too great a willingness on the part of an editor to use scissors and paste can create a misleading picture, particularly where the extract consists of the conclusions reached by the judge without set-ting out the reasoning that led him or her to that conclusion. Secondly, it is important that law students get used to reading cases. e ability to read judgments and to extract from them the principle that is to be applied to the facts of the case at hand is an important skill that lawyers must acquire. ey will not acquire that skill if their legal education does not expose them to judgments and instead provides them with books that do all the editing for them. e materials consist of statutes, statutory instruments, re-statements of contract law, extracts from textbooks, and academic articles. I have used the extracts from academic articles largely for the purpose of illustrating particular points or di, erent interpretations of a case. It has not been possible, for reasons of space, to include lengthy extracts from major theoretical writings on the law of contract.

    Secondly, the book aims to explore the law of contract in its transactional context. It is not con ned to an analysis of the doctrines that make up the law of contract but extends to the terms that are to be found in modern commercial contracts and the principles that are applied by the courts when seeking to interpret these contracts. Many of the rules that regulate modern contracts are to be found, not in the rules of law, but in the terms of the contract itself. e rules of law are o. en default rules, that is to say they apply unless they have been excluded by the terms of the contract. Many modern commercial contracts do displace the rules that would otherwise be applicable, especially in the case of contracts con-cluded between substantial commercial entities. ese are o. en substantial documents that make elaborate provision for various eventualities. It is therefore important to have regard to the standard terms that are to be found in modern commercial contracts (o. en referred

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  • 2 | contract law: text, cases, and materials

    to as boilerplate clauses). e book does not attempt to provide detailed guidance on the dra. ing of contract clauses. But nor does it ignore dra. ing issues. On a number of occasions I have included the text of the clause that was in issue between the parties for the purpose of trying to identify the issues that can and do confront lawyers in practice. is is particularly so in relation to the dra. ing of clauses such as exclusion clauses (see Chapter 13 below), force majeure clauses (see pp. 399400 below), entire agreement clauses (see pp. 404405 below), and liquidated damages clauses (see pp. 919925 below). It is important to understand why it is that lawyers insert such clauses into their contracts and why, in the case of clauses such as exclusions and limitations of liability, they can be the subject of vigorous negotiation between the parties (or their lawyers).

    e third aim is to explore English contract law from a transnational and compara-tive perspective. is is not a book on comparative contract law but it is no longer pos-sible to ignore the fact that transactions in the modern world are frequently entered into on a cross-border basis. As the Lord Chancellors Advisory Committee on Legal Education stated in its First Report on Legal Education and Training (HMSO, 1996) at paragraph 1.13:

    Legal transactions are increasingly international in character. An understanding of the differ-ent ways that civilian lawyers approach common law problems can no longer be regarded as the preserve of a few specialists. Legal education in England and Wales must be both more European and more international.

    It should not, however, be thought that the mere fact that the parties to the contract are from di, erent jurisdictions has the inevitable consequence that their contract is regulated by rules that di, er from those applicable to purely domestic transactions. e law a, ords to contracting parties considerable freedom to choose the law that is to govern their contract (see further pp. 400401 below) and they will generally select as the applicable law the law of a nation state (usually, but not always, the domestic law of one of the parties to the contract). In the choice of law stakes English law has done remarkably well. e volume of interna-tional trade that has been done on contracts governed by English law is enormous. A glance at the law reports will tell you that some of the leading contract cases have been litigated between parties who had no connection with England other than the fact that their contract was governed by English law. e explanation for this undoubtedly lies in this countrys great trading history, which has been of great pro t to the City of London and to English law, if not to other parts of the United Kingdom. Some commodities markets have had their centres in England and many standard form commodity contracts are governed by English law. London has also been, and continues to be, a major centre for international arbitration. However, it can no longer be assumed that international contracts will continue to be gov-erned exclusively by the laws of a nation state. Developments are taking place at a number of di, erent levels.

    In the rst place there is the impact of our membership of the European Union. European law has had a signi cant impact on the law relating to certain particular types of contract (especially in the context of public procurement) but its impact on the general principles of contract law has, until recently, been relatively small. is is now in the process of change. e Unfair Terms in Consumer Contracts Regulations 1999, enacted in implementation of a European Directive on Unfair Terms in Consumer Contracts, are beginning to bite (see further Chapter 14). e Regulations have now been the subject of analysis by the House

    Legal transactions are increasingly international in character. An understanding of the differ-ent ways that civilian lawyers approach common law problems can no longer be regarded asthe preserve of a few specialists. Legal education in England and Wales must be both moreEuropean and more international.

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  • introduction | 3

    of Lords in Director General of Fair Trading v. First National Bank [2001] UKHL 52; [2002] 1 AC 481 (p. 481 below) and O ce of Fair Trading v. Abbey National plc [2009] UKSC 6; [2009] 3 WLR 1215 (p. 486 below) and the Regulations have also been the catalyst for a re-examination by the Law Commissions of the Unfair Contract Terms Act 1977, one e, ect of which may be to give the courts greater powers to control unfair terms in commercial contracts to which small businesses are a party (see pp. 491494 below). More far-reaching measures may be on the horizon as a result of the production of the Dra. Common Frame of Reference prepared by the Study Group on a European Civil Code and the Research Group on EC Private Law (Acquis Group), which may form the basis for a broader attempt to bring about a greater degree of harmonization of European private law in general and European contract law in particular (see further p. 9 below and C von Bar, E Clive and H Schulte-Nlke (eds), Principles, De" nitions and Model Rules of Private Law: Dra' Common Frame of Reference (Sellier, 2009)).

    At the second level we have internationally agreed conventions such as the United Nations Convention on Contracts for the International Sale of Goods (the Vienna Convention). e Convention has been rati ed by most of the major trading nations in the world but not by the United Kingdom. While the present Government has indicated its intention to ratify the Convention at some future time, it has not, as yet, found the Parliamentary time to do so. e Convention is obviously con ned to international contracts for the sale of goods and so is not of general application throughout the law of contract. But it is nevertheless an extremely signi cant document and it has exercised, and will continue to exercise, consid-erable in] uence on the development of the law of contract in various jurisdictions around the world.

    At a third level there have been attempts to dra. statements of non-binding principles of contract law. ere are two notable examples in this category. e rst is the Unidroit Principles of International Commercial Contracts and the second is the Principles of European Contract Law. It is important to stress that neither of these documents is legally binding in the sense that it is intended to be rati ed by States and incorporated into their law